Two JumpStarts, but no dead battery, that's Dave Berkus!
Dave is making his 16th appearance on the show, Ray Leach of JumpStart Ohio, his 2nd, and ACA board member Katherine O'Neill of JumpStart NJ, her first.
"The new normal," according to Ray, "is going to have a big impact on angels, on how companies get funded and how quickly they can scale." That being the VC industry's poor track record and inability to attract new investment.
It's the innovation economy of the future we're talking about.
How did angel investing get started in San Diego? My guest Vern Yates shares the story.
I knew we were going to hit it off when I spotted the elaborate model trains on his patio. I can't believe my eyes as I reach for the camera.
As we sit down, I know I'm in for a look back at the history of angel investing in San Diego. Vern's been there.
How do you succeed in angel angel investing? Start 13 years ago, in the good ole days when Vern describes returns of 40X and 150X. If you do that you'll be playing with house money for the rest of your career.
We get started with a few topics from the recent Tech Coast Angels' off site strategic planning meeting where no issue was off the table.
"Moneyapolis" it used to be called, does the term still apply today?
St Paul-based RAIN Source Capital operates 23 funds across Montana, Idaho, Iowa, South Dakota, North Dakota, Washington and Oregon; that's a lot of territory. They're funding 15-20 deals a year out of the 1,000 applications they receive. This is some operation! Even so, CFO Peter Birkeland points out "deal flow can be lumpy".
Dan Rosen of the Alliance of Angels in Seattle squares off against Vancouver's Basil Peters (no relation) in a lively discussion of term sheets and how these two former venture capitalists, now angel investors, have evolved their thinking on the critical components in term sheets.
"Incremental innovation," that's what JumpStart's Ray Leach says was happening in Northeast Ohio before his fund kicked in. JumpStart is funding seed deals then working with angel groups and venture capital for subsequent rounds.
What's their typical seed investment? $340K That's substantial and it's only one of the surprises Ray describes about funding Ohio companies.
At some level, don't we all envy the French? When you listen to Philippe you'll wish you were a French entrepreneur!
Representing 3,500 business angels in 80 angel groups, France Angels has grown at a rate close to 50% per year!
What kind of economic force can you bring to bear with a group that large? According to President Philippe Gluntz, "we invested last year in 300 deals which means we invested 60M eruos last year". Wow! But like investors everywhere, Philippe knows that's not enough.
I spent time with the founder of the San Diego Band of Angels yesterday. Vern Yates will be appearing here soon, but until then enjoy this teaser clip. The fledgling angel group would soon join forces with the Tech Coast Angels who were expanding from their Orange County and Los Angeles footholds. Today TCA has 5 networks from Santa Barbara to San Diego.
Thoughts after the Puerto Rico Venture Forum #PRVF
It's fun to observe the start of an angel group. The challenges almost overwhelm; are there enough Investors, enough good deals, acquirers and are there basic cultural issues (e.g. "business is private in Puerto Rico") that will make you question: is my time better spent on other projects?
I can relate. As Tech Coast Angels considered expanding east I helped lay some of the first bricks that would eventually build a network in Riverside/San Bernadino, called the Inland Empire. The first big break was finding a local champion, Riverside is a little more than an hour from my home plus it has serious rush hour traffic issues; getting to a dinner meeting meant leaving Orange County at 2pm! So the champion came in the form of Los Angeles member Mike Napoli, not an IE resident, but he had a 2nd home in Palm Springs, so he was driving through the IE frequently. Plus he had the perspective, besides TCA, he'd recently joined the new Coachella Valley (Palm Springs) Angel Network, so he could see just what had to be done to get the IE angel network going. Fast forward a few years and, in retrospect, it all looks easy.
"Tit -for-tat's a principle any lead investor needs to understand," according to James Geshwiler.
He's the co-Managing Director of the Common Angels in Boston and here he shares stories about leading deals, managing early-stage financial risk and how game theory affects angel group co-investing across New England.
Tech Coast Angels Chairman elect Richard Sudek has handed out 20 copies of Spencer Johnson's Who Moved My Cheese to grease the wheels of resistance to change prior to our 2nd annual offsite strategic planning day set for tomorrow at Chapman University. It's a great start for his reign and might be just the nudge we need to rethink some of our processes. As a 12 year old angel group, it's easy to get set in our ways. Maybe angel groups are especially prone to resistance to change because their members aren't exactly spring chickens. We all become more comfortable with the routine as we age and the nature of angel investing is making many of us older fast. Once venture capital makes an investment in a portfolio company our timelines to an exit are growing well beyond the 3-5 years we all imagined when we started angel investing; today we're more likely to see 7-8-9 years (and counting) to exit, so we're only becoming more prone to being set in our ways. I often say that the original founders of TCA, many of whom are still involved, weren't so young 12 years ago.
But speaking of books that might prompt change, Basil Peters' Early Exits gets my vote for Book of the Year. The premise is refreshingly simple: as soon as you fund a company get started on crafting the exit. Too often it seems we let the company muddle along on its own and as the cash reserves get thin the founders make the venture capital pitch. But venture capital has to put a lot of money to work, the average venture fund being $250M, and they need big exits to make the fund successful and billion dollar exits don't happen overnight. Contrast this with Basil's concept of funding a startup entirely with angel fundings, maybe 2 or 3 small rounds, then finding an exit partner to acquire the company for somewhere in the $20-30M range. Angels get a nice return, entrepreneurs often see a 100X return and we get out of the deal in much less time.
Our angel peers in the life sciences need venture capital relationships to fund their ambitious startups, but that's their model and it works for them. Too many times we've been tempted by the siren song of venture capital, as my recent guest, Momentum's Andy Wilson, has admitted, and end up with less well-suited deals involved in endless timelines as venture capital seeks their ultimate objectives. Meanwhile we're getting older.
"From a high of 35 investor members, we're now down to about ten active participants," Chapter President Steve Murchie was quoted. "A group that size isn't financially sustainable using our membership model, nor is it likely to drive investment volume at a pace that is fair to entrepreneurs."
David Rose, founder of Angelsoft and the New York Angels, speaks of several recent announcements and makes one on the Show. Angelsoft has recently developed new relationships with the Angel Capital Association (ACA), the National Association of Seed and Venture Funds (NASVF) and the National Angel Capital Organization of Canada (NACO), basically sewing up all the major angel associations in North America. How did he accomplish all this? Or is it more like, "what took so long"? He has over 20,000 accredited investors in hundreds of angel groups using Angelsoft. Best of all, it's free.
John Kensey's one of the original Tech Coast Angels and when I joined he volunteered to be my mentor.
Back in 2004 he was one of 3 partners who formed the Seraphim Sidecar Fund. Today it's fully invested and TCA talks about creating a new fund. John says he'll help and here he shares what he'd do differently next time.
The life of an angel fund is longer than any of us thought, and returns have been meager, but now there's news of an IPO...
Growing from 20 to 100 members since 2003, EBAN must be doing something right!
The European Business Angel Network is the association for angel groups and early stage players in Europe. With all that interest in angel investing come certain challenges, too, like cross border syndication.
Join us as we take a trip through Europe's angel investing scene.
Jeffrey Sohl at the UNH Center for Venture Research reports today that "the angel market appears to have reached its nadir in the first half of 2009". Noting that dollars invested saw, "a decrease of 27 percent over the first half of 2008". Read the report.
That's what new members want to know when they join the Tech Coast Angels. Warren Hanselman, past Vice Chairman knows exactly how we're doing; he maintains the database which tracks every one of the 157 companies we've funded. As he looks at TCA's returns, he's become an advocate for Basil Peters' Early Exits.
"The next step in the evolution of angel groups is we need to find a way to start syndicating the good deals, the deals where they're truly worthy, they're up running and their next step would normally be to go to a VC, would be to go to our sister organizations around the country and say, 'look if we band together we can put a couple of million dollars together into this thing and keep the VCs out'."
Astronomers look through their telescopes to see back in time to the beginning of the universe, so too we can observe the initial formation of an angel group. Marco Villa describes the first and only angel group in Italy, based in Milan with plans to grow to other cities: the Italian Angels for Growth.
Many European angel groups enjoy some state support or tax incentives; Marco is quick to describe the support he gets: "No, nothing", so how will angels fare in a country where the "legislators don't know anything about venture capital"? It's not going to slow Marco down.
How are angel deals done in Bavaria? And how are they different from the US? There's lots of government money available for startups, so that's not the issue, but there are challenges.
We met during the EBAN tour of Silicon Valley earlier this year, so I was eager to renew contact when Michaela Mueller emailed with questions about deal formation. She and Arne Hostrup run Netzwerk Nordbayern in Bavaria, where things are done differently than in the Valley. Some of the issues they have will surprise you, one for example, it's not finding the money.
Was he rooting for McCain/Palin when he named his angel group Maverick? If I had this interview to do over, I'd ask, but we do cover all things related to angel investing in Southern California, especially its newest angel group, the Maverick Angels. Westlake Village, to be more specific, which once hosted a Keiretsu Forum chapter. Is Maverick Keiretsu reincarnated? Just how are they unique? I do ask that question.
Southern California already has mature, well established angel groups like the Pasadena Angels and the Tech Coast Angels; is there room for one more? Will a little competition be good for entrepreneurs? Is Maverick part of the evolution of angel investing?
Here's a remastered interview from the archives: Tech Coast Angels Dave Berkus, John Harbison and Luis Villalobos join me for a discussion on due diligence. These three know what they're talking about; between them, they've funded over 130 early-stage deals. So if you see yourself pursuing angel investing any time soon, this is the show for you.
And not just for entrepreneurs, I pulled this out of the vault and dusted it off for the Southwest Regional Angel Leadership conference call; I missed the call, but wanted to contribute something to the discussion. Here it is.
Maybe you've already done an angel round and now you're looking for VC money. So how is it different pitching to VCs versus angels? Joe Platnick knows.
Joe's a long term member of the Pasadena Angels; he's on the board and he's recently joined a venture capital firm in New Zealand. What kind of a year are the Pasadena Angels having in 2009? And how did their conversion to Angelsoft go?
I've seen him around the Southland for years, always willing to come out and speak to an audience of entrepreneurs. It's part of giving back for Joe.
No Faking! Melissa Cardon and Richard Sudek on Passion
If at first you don't succeed...
Is it easier to recover from failure in the US compared to Europe?
Do entrepreneurs have a more difficult time bouncing back in say, Germany, versus Silicon Valley?
Is there a difference of perception, a stigma regarding failure between Silicon Valley and Silicon Alley? Melissa says yes.
Melissa Cardon of Pace University in New York City teams up with Richard Sudek at Chapman University in Orange County to discuss the results of their research into entrepreneur passion. Richard's also a long term member of the Tech Coast Angels and is the incoming Chairman for 2010, so he has access to the entrepreneur presentations which are the source of the data.
So what are the 3 types of passion? And why is the question and answer period after the presentation so fraught with danger for the entrepreneur?
Events
The Orange County Venture Group features "Healthcare: The Final IT Frontier" 7am on July 21st at the Pacific Club in Newport Beach. Come out and meet the local VCs.
What's the state of one of the largest angel groups in the world, the Tech Coast Angels? How has deal flow been affected by the downturn? And what about membership; how soon will it rebound? And what's deal-lead fatigue?
As an investor, "two thirds of my investments are in life science", which enjoys a special emphasis in the San Diego network. Ralph sees parallels between life science and clean tech, too, but his assessment of venture capital in San Diego surprises me.
Could you use a tax break?
Do you feel that your early-stage investments are good for the economy and should be encouraged?
So does Liddy Karter.
Sandwiched between Boston and New York you'll find the Angel Investor Forum in Connecticut. Liddy sees a lot of activity in both cities and it's led to a year where "we've invested more in 2009 than ever before!". You haven't heard that on the show lately, so who better to be leading the Angel Capital Association's Committee for Public Policy?
Another $30 billion for General Motors as they enter bankruptcy, unbelievable! What would $1B do if it were spread around to angel groups? Liddy can imagine, but is anybody listening? Not in Connecticut according to Liddy. Instead head to North Dakota, Hawaii or Maine for the best tax incentives for angels. And what has Wisconsin done to earn her vote for the strongest example of public policy effectiveness?
Save the date: check out Liddy's New Angel Summit (angels from New Jersey, New York, and New England in New Haven, get it?) September 17th.
Ever wanted to hear how angels think of the terms they offer and the returns they expect? And what will happen if the outcome is less than a complete success? That's what Angel Capital Association Chairman John Huston shares.
Dan Rosen of the 
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